Firm News

Summary of Keeping American Workers Paid and Employed Act (“KAWPEA”), a part of the CARES Act

Grady Dickens
McGuire, Craddock & Strother
April 2, 2020

KAWPEA allocates $349 billion to a program administered by the Small Business Administration.  The program is structured as a loan, but it acts more like a grant program with the intention to encourage employers to retain their employees during the COVID-19 pandemic.  This memo will provide a broad overview of KAWPEA but is not intended to be exhaustive.  We encourage you to contact us with any questions regarding your specific situation.


Qualifying organizations, which include self-employed individuals and nonprofits, that employ not more than the greater of (i) 500 employees or (ii) the standard size SBA industry classification (range between 1500 and 100) are eligible for the program (an “eligible recipient”).  In addition, single locations of businesses in the accommodation and food services industries with not more than 500 employees, are eligible.  If eligible, the eligible recipient must be able to certify, among other things, that the uncertainty of current economic conditions makes necessary the loan request to support ongoing operations and that the loan proceeds will be used for allowed uses during the covered period (February 15-June 30).

Loan Amount

The maximum amount of the loan request is average monthly payroll for the 12 month period prior to loan date, multiplied by 2.5.  Payroll excludes employee compensation in excess of $100,000 prorated.  Accordingly, if an employee makes $150,000, you exclude $50,000 from the calculation.

Allowed Uses

Loan proceeds may be used to pay (i) payroll, (ii) group health benefits, benefits during paid sick medical or family leave, (iii) mortgage interest, (iv) rent, (v) utilities and (vi) interest on any debt obligation incurred before the covered period.

Loan Terms

All loans under the KAWPEA are nonrecourse and cannot be secured by collateral.  They may not have an interest rate exceeding 4 percent or a term exceeding 10 years. Payments on the loan are deferred by not less than 6 months, and not more than 1 year.

Loan Forgiveness

A loan recipient shall have indebtedness forgiven for payments made during the forgiveness period (the 8-week period commencing when loan funds are disbursed by the lender) for (i) payroll costs, (ii) mortgage interest, (iii) rent or (iv) utilities if they provide the certification and records required.  Note interest on other debt may not be forgiven.

Loan Forgiveness Reduction

Loan forgiveness may not exceed principal of the loan. In addition, the amount forgiven is reduced if employee salary or wages during the forgiveness period fall more than 25 percent of total employee salary or wages during the most recent full quarter or if the number of employees is reduced during the forgiveness period, subject to a re-hire exception.

Application for Loan Forgiveness

An eligible recipient must submit an application to receive loan forgiveness that requires detailed records on payroll and various certifications.

Tax Consequences

Forgiven loan amounts are excluded from income.  Presumably, loans that are not forgiven under the KAWPEA procedure but later cancelled will be subject to existing Internal Revenue Code provisions on debt cancellation.

If you have any questions regarding the application, certification or loan forgiveness application processes, please call Grady P. Dickens at (214) 954-6804 (office) or (214) 402-9830 (cell).

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances.  The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.  The information contained herein is current as of the date of this article.